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The matrix is designed to compare the reported actuals against the company’s historical trends, the consensus expectations and forward guidance. The matrix will use Bloomberg consensus figures along with the historical earnings to evaluate the strength of the current numbers; the company’s standing in the broker sphere and the overall market reaction.
The desired outcome of the earnings matrix is to rate the first-half earnings and future growth story on a long, neutral or short call. Below is an overview of the questions we will ask of each company to if there an investment case to be made, or whether there is an opportunity to short the results presented.
An insight into our evaluation matrix
Do the actuals align with company forecasts? The comparison will be based on a historical half-on-half and/or year-on-year basis, depending on the release. As seasonality tends to skew half-on-half numbers, the matrix will compare first-half earnings releases on a historically weighted basis to the full-year forecasts.
The measurement of how strong or weak company actuals are comes from the market’s perceptions and expectations rather than company forecasting.
Actuals will be judged on whether the company beats the mean consensus numbers. We will be asking whether the actuals at the top or bottom end of the consensus range, and if they are seen in a positive or negative light.
Earnings consistently also need to be taken into consideration to understand whether the actuals are an anomaly to the consensus view, or are the actuals are adding to a longer-term trend of growth or contraction. Are there trends in how the company has reported in the past that are showing through in the actuals? This is key to forward expectations.
The matrix will review the previous releases coupled with the actuals to assess the historical earnings trends.
On company-specific views, is forward guidance supportive or counter to growth expectations? Is the expected consensus read on revenue, earnings per share and net profit growth over the next two financial years supportive of what has been send in the actuals?
What is the consensus view of the stock? What are the mode and mean averages on a buy, hold, sell consensus?
Coupled with the consensus call on the stock, is the current share price versus consensus price target trading at a premium or discount? Is the upside/downside to the 12 month target price?
Is the share register under short pressure? Has the registry seen increased or decreased short positions?
The outcome – potential trading opportunities
The matrix should give a complete picture of the company’s results from an overall consensus perspective, with all major trading variables incorporated.
We believe that the matrix provides a clear and present picture of where the reporting company’s results sit in market perception, on fundamentals and on price.
As earnings season kicks into gear, we will be releasing notes on all key stocks – it’s just another way we ensure you have the trading edge. Keep up-to-date with company earnings via our shares news and by following our analysts on Twitter.